I'm still a little unclear on this. The Watch has an accelerometer to measure general movement like stepping and standing. But for an accurate measurement of distance travelled, or to understand the difference between cycling and running, it still relies on your iPhone's GPS and Wi-Fi.
So won't you still have to carry your iPhone with you when you run or workout to best measure your progress?
None of the fitness bands (FitBit, Jawbone, Nike Fuel, etc.) have GPS. They all rely on a few sensors to track your activities. These all require you to put it into a 'mode' to let the device know if you're walking, running, cycling or sleeping. The devices don't know what you're actually doing. People have been using devices like these for years, tracking their workouts.
Yes, in a perfect world, a GPS would make it better. But none of the fitness bands have GPS. Some smart watches do (like the Galaxy Gear S), but that is unreliable if you read the Samsung message boards.
So, nothing's perfect yet.
Edit: The Microsoft Band DOES have GPS, but is not waterproof.